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Adobe Reports Q3 Results, Earnings Drop

Friday, September 15, 2006

Press release from the issuing company

SAN JOSE, Calif.--Sept. 14, 2006-- Adobe Systems Incorporated today reported financial results for its third quarter ended September 1, 2006. The Company's Q3 results reflect the acquisition of Macromedia in December, 2005, and are compared to pre-acquisition results of prior fiscal periods as applicable. In the third quarter of fiscal 2006, Adobe achieved revenue of $602.2 million, compared to $487.0 million reported for the third quarter of fiscal 2005 and $635.5 million reported in the second quarter of fiscal 2006. On a year-over-year basis, this represents 24 percent revenue growth. Adobe's third quarter revenue target range was $580 to $610 million. "Q3 was a solid quarter for Adobe with revenue and earnings near or above the high end of our financial target ranges," said Bruce R. Chizen, Adobe chief executive officer. "With new products launching this quarter, our outlook for the remainder of the year remains positive." GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.16. Adobe's third quarter GAAP EPS target range was $0.13 to $0.16. Non-GAAP diluted earnings per share, which excludes amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, SFAS 123R stock-based compensation, tax differences due to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, and investment losses, were $0.29. Adobe's third quarter non-GAAP EPS target range was $0.25 to $0.27. GAAP net income was $94.4 million for the third quarter of fiscal 2006, compared to $144.9 million reported in the third quarter of fiscal 2005, and $123.1 million in the second quarter of fiscal 2006. Non-GAAP net income, which excludes, as applicable, amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, SFAS 123R stock-based compensation, tax differences due to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, and investment gains and losses, was $171.5 million for the third quarter of fiscal 2006, compared to $146.4 million in the third quarter of fiscal 2005, and $189.4 million in the second quarter of fiscal 2006. GAAP diluted earnings per share for the third quarter of fiscal 2006 were $0.16 based on 600.9 million weighted average shares. This compares with GAAP diluted earnings per share of $0.29 reported in the third quarter of fiscal 2005, based on 507.8 million weighted average shares, and GAAP diluted earnings per share of $0.20 reported in the second quarter of fiscal 2006, based on 613.8 million weighted average shares. Adobe's GAAP operating income was $110.0 million in the third quarter of fiscal 2006, compared to $183.6 million in the third quarter of fiscal 2005 and $147.9 million in the second quarter of fiscal 2006. As a percent of revenue, GAAP operating income in the third quarter of fiscal 2006 was 18.3 percent, compared to 37.7 percent in the third quarter of fiscal 2005 and 23.3 percent in the second quarter of fiscal 2006. Adobe's non-GAAP operating income, which excludes, as applicable, amortization of purchased intangibles, amortization of Macromedia deferred compensation, restructuring charges related to the Macromedia acquisition, a charge for incomplete technology related to a small acquisition, and SFAS 123R stock-based compensation was $207.2 million in the third quarter of fiscal 2006, compared to $183.6 million in the third quarter of fiscal 2005 and $243.1 million in the second quarter of fiscal 2006. As a percent of revenue, non-GAAP operating income in the third quarter of fiscal 2006 was 34.4 percent, compared to 37.7 percent in the third quarter of fiscal 2005 and 38.3 percent in the second quarter of fiscal 2006. Adobe Provides Fourth Quarter FY2006 Financial Targets For the fourth quarter of fiscal 2006, Adobe announced it is targeting revenue of $655 million to $685 million. The Company also is targeting a GAAP operating margin of approximately 21 to 24 percent in the fourth quarter. On a non-GAAP basis, which excludes acquisition-related costs and SFAS 123R stock-based compensation, the Company is targeting a fourth quarter operating margin of approximately 37 to 38 percent. In addition, Adobe is targeting its share count to be between 600 million and 602 million shares in the fourth quarter of fiscal 2006. The Company also is targeting other income in its fourth quarter to be approximately $16 million to $18 million, with a GAAP and non-GAAP tax rate of approximately 26 percent. These targets lead to a fourth quarter GAAP earnings per share target range of approximately $0.19 to $0.22. On a non-GAAP basis, which excludes acquisition-related costs, SFAS 123R stock-based compensation, and tax differences related to the timing and deductibility of the Macromedia acquisition-related charges and SFAS 123R stock-based compensation, the Company is targeting earnings per share of approximately $0.32 to $0.34.

 

 

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